Correlation Between Seadrill and CGX Energy

Can any of the company-specific risk be diversified away by investing in both Seadrill and CGX Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Seadrill and CGX Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Seadrill Limited and CGX Energy, you can compare the effects of market volatilities on Seadrill and CGX Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Seadrill with a short position of CGX Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Seadrill and CGX Energy.

Diversification Opportunities for Seadrill and CGX Energy

-0.18

Correlation Coefficient

Seadrill  CGX Energy

Good diversification

The 3 months correlation between Seadrill and CGX is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Seadrill Limited and CGX Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CGX Energy and Seadrill is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Seadrill Limited are associated (or correlated) with CGX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CGX Energy has no effect on the direction of Seadrill i.e., Seadrill and CGX Energy go up and down completely randomly.

Pair Corralation between Seadrill and CGX Energy

Given the investment horizon of 90 days Seadrill is expected to generate 28.81 times less return on investment than CGX Energy. But when comparing it to its historical volatility, Seadrill Limited is 3.12 times less risky than CGX Energy. It trades about 0.01 of its potential returns per unit of risk. CGX Energy is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  10.00  in CGX Energy on September 4, 2024 and sell it today you would earn a total of  4.00  from holding CGX Energy or generate 40.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Seadrill Limited  vs.  CGX Energy

Seadrill Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Seadrill Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Seadrill is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

CGX Energy

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CGX Energy are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, CGX Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Seadrill and CGX Energy

The main advantage of trading using opposite Seadrill and CGX Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Seadrill position performs unexpectedly, CGX Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in CGX Energy will offset losses from the drop in CGX Energy's long position.

The idea behind Seadrill Limited and CGX Energy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.